Category Investments

Worst year ever for equity unit trusts

12 January 2009 Plexus Asset Management

The past year has turned out to be the worst year ever for investors in rand-denominated domestic equity funds, according to a recent study conducted by Plexus Asset Management.

Only two of the 151 funds in the domestic equity fund sectors managed to post a figure in the black for the calendar year ended 31 December 2008, says Dr Prieur du Plessis (pictured),  Plexus group chairman. Both funds make use of protection by selling equity derivatives against their equity positions.

“The funds that did not lose money are the Peregrine Protected Equity Fund and the RMB Protected Dividend Fund, with returns of 7,3% and 5,0% respectively. These returns are still significantly below money market yields for the year,” says Du Plessis.

The returns achieved by domestic equity funds over the year vary considerably, ranging from +7,3% to -62,2%. Funds that lost the least over the year fell in the Varied Specialist Funds sector, with an average return of -11,3%. These funds tend to hedge against market downside (ie protected equity funds) and invest mainly in high dividend-yielding shares.

Sectorswith the second and third lowest losses for the yearare Industrial Funds and Value Funds, which yielded average returns of -21,5% and -21,7% respectively. “Value managers struggled up to the end of the second quarter because of their underweight resources exposure. This investment style has, however, been vindicated as many of these funds were able to withstand the market carnage experienced over the last few months relatively well,” says Du Plessis.

Funds that bore the brunt of the bear market this year were Smaller Companies funds with an average return of -38,1%. The biggest loss-maker of all domestic equity funds was the STANLIB Small Cap Fund, with a dismal return of -62,2%. Resources & Basic Industries Funds (with the exception of gold funds), the best performers during the first half of the year, ended up near the bottom of the pile with an average return of

”Despite a year-end rally of almost 21% in the FTSE/JSE All Share Index since its low on 20 November, 2008 has proven to be the worst ever year for domestic equity funds by a significant margin,” says Du Plessis.

“The market will have to rally by about another 30% before investors recover what they lost in 2008,” he says. “With more bad news on the company earnings front on the cards, it would take a brave person to bet on this happening any time soon.”

Although the sharp decline in equity prices has presented a good buying opportunity and the current rally is providing some very welcome relief, Du Plessis believes investors should still tread with caution.

“The effects of the credit crisis on global growth and financial markets are proving to be a lot worse than most expected. Further bad news and disappointing company earnings cannot be ruled out,” he says.

Table A

The average performance for the various Domestic Equity sectors during the 2008 calendar year:  


Average performance for calendar year 2008

Smaller Companies




Resources & Basic Industries






Large Cap






Varied Specialist


Data source: Profile Media

Graph B

The average annual returns achieved by domestic equity funds that invest across the entire market (ie General, Value and Growth funds) and the FTSE/JSE All Share Index since 1989:

 (Click on image to enlarge)

Data source: Profile Media

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